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UPDATE 2-Orange starts to see rewards of French investment

* Confirms targets for 2018

* Says no plans to pursue major merger deals

* Increases dividend to 0.70 euro/share for 2018

* Company boss Richard wins new mandate (Adds comments on Deutsche Telekom, shares)

PARIS, Feb 21 (Reuters) - Orange's high investments started to bear fruit in France last year, capping a challenging period for the telecom operator in the face of a price war waged by younger rival Iliad in its home market.

The company said the results were a vindication of its strategy. Under boss Stephane Richard, awarded a third four-year contract on Tuesday, it has shied away from costly sports rights auctions, betting instead on the rapid expansion of fiber optic broadband network to ensure higher and recurring revenue.

This is in stark contrast with other telecom groups such as Britain's BT and Altice's French unit SFR.

Chief Executive Richard told analysts that the group had no plans to merge with a rival in Germany or expand in another country in Africa.

Merger talks took place last year between the former monopoly and Deutsche Telekom but fizzled out because it was not feasible to put the companies on an equal footing, a source said in January.

"There is no hidden agenda, there is no hidden project, there is no hidden negotiation with anybody," Richard said.

"Neither with the Germans, nor with the Africans, nor with anybody else," he added.

Richard also ruled out the possibility that Orange could lead the potential new round of talks between French telecom operators, to cut the number of players from four to three.

SPAIN SHINES TOO

Orange, Europe's fourth-biggest telecoms operator by market capitalisation, trades at 12 times estimated 12-month forward earnings against 12.8 times for Deutsche Telekom, 20.9 times for Vodafone and 10 times for Telefonica.

Shares in Orange added 1.8 percent by 1150 GMT.

Annual sales in France grew for the first time since 2009, the company said on Wednesday, lifting group operating earnings and convincing management to lift the annual dividend for 2018.

Orange's fourth-quarter results were in line with expectations, with core operating profits growing by 2.5 percent to 3.22 billion euros.

The group confirmed its targets as laid out at its investor day last December, including growth in its adjusted EBITDA for 2018. It also proposed hiking its yearly dividend by 5 cents to 0.70 euro per share in 2018.

Spain, Orange's second-biggest national market after France, was a big contributor to profits last year, with adjusted earnings before interest, tax, depreciation and amortization (EBITDA) jumping by 17 percent.

As in France, the efforts made on cost savings and the customers' shift toward the more profitable fiber optic technology for their broadband connection drove higher results. ($1 = 0.8113 euros)

(Editing by Sudip Kar-Gupta/Keith Weir)